A few months ago, we warned our readers to beware of hype in the crypto world. People were creating new crypto tokens and adding AI to the name. Others were bidding up the prices of these tokens in the mistaken belief that these were anything other than new altcoins seeking a foothold in the competitive crypto realm. But once you get past the AI hype there is another issue in regard to how AI will affect crypto. It has to do with artificial intelligence apps becoming dominant in the investing and trading world. No one is discussing this issue in crypto right now, but the head of Securities and Exchange Commission has brought this in regard to the wider world of finance and investments.
AI Warning for Crypto
SEC head Gensler’s worries about AI go to how AI has the potential to transform business and society. Gensler has written about how AI has the potential to create models for how to invest and how to trade. He believes that a mere handful of super-apps will come to be used by businesses and by investors and traders. This will create a herd mentality. It will increase the interconnectedness across the financial arena, including crypto businesses. This, the SEC head says, will increase the likelihood of a financial crash as everyone moves in lockstep, driven by AI “advice” and automatic trading.
Who Will AI Apps Work For?
As businesses, investors, and traders give more and more authority to complex, self-learning algorithms, those algorithms will be set up to benefit those who created them and those who are doing the coding. AI apps are capable of changing their own internal rules. Thus, there is always the risk that, like in the old movies War Games or Terminator, the computers decide to take over. The most realistic result of AI being deeply imbedded in the financial arena, including in crypto, is that AI will manipulate data and their advice based on that data. That manipulation will not be for the benefit of retail or even institutional investors and traders of crypto currencies. It will not necessarily be helpful for DeFi or NFT businesses either.
AI as an Idiot Savant
The goal in developing artificial intelligence has been to create machines that can carry out complex tasks without human intervention. The biggest advances have come the ability of these programs to have access to and to be able to rapidly process increasing amounts of data. To our way of thinking, none of this sounds like a machine with the wisdom and sound judgement of an investor like Warren Buffett. It makes us think of the idiot savant. This is a person who has exceptional ability in things like music or mathematics but is significantly impaired in other areas such as social skills or common sense. This person, like AI, is able to process information rapidly. But they may not be able to make sense of what they are doing in so far as it affects the broader world.
When Everyone Uses the Same Indicators for Trading Bitcoin
In today’s world before the AI’s take over, people trade Bitcoin by using technical indicators. And they consult the fundamentals that we now know drive all markets including cryptocurrencies. Whenever someone finds a more effective and profitable way to trade, they follow that path. The concern with AI for crypto traders is that, initially they will provide better results in crypto trading. Then enough people will jump on the bandwagon and use the same AI app or apps. This will create a herd mentality without the mentality. Human thinking will be removed from the loop. This is where SEC head Gensler is concerned that what will essentially be idiot savant thinking will create financial crises and market crashes.
Does an AI Have a Fiduciary Responsibility?
Investment advisors in the US operate under strict rules. They have to put the interests of the client ahead of their own at all times. A valid concern with AI is if the really smart programmer who is writing code for the AI has any fiduciary responsibility. How about the AI when it starts to learn and reprogram itself? Who will be liable when an AI gives bad or self-serving advice? Will someone come up with a real world version of Azimov’s Three Laws of Robotics from his Foundation series to help prevent this?
The Three Laws of AI?
Modified so that they read AI instead of robot, the three laws Azimov envisioned are these.
- An AI may not injure a human being or, through inaction, allow a human being to come to harm.
- An AI must obey orders given it by human beings except where such orders would conflict with the First Law.
- An AI must protect its own existence as long as such protection does not conflict with the First or Second Law.
So far nobody is programming any of this into AI apps that are going to have a great deal of control over your money and your life.
SlideShare Version – How AI Will Affect Crypto